Agile Business, Microsoft and the Threat of Cloud Computing

Competition is the keen cutting edge of business, always shaving away at costs.

-- Henry Ford

I've been working with Java and Microsoft technologies -- .NET most recently -- in one form or another for quite some time. My company, now headquartered in Chicago with an office in NYC, was actually founded in Seattle by a group of four developers that had met around developing an Exchange-based bulk email system to replace the sendmail-based ones that Microsoft was using at the time. In that span, despite all of the food fights about total cost of ownership (TCO), etc., I haven't seen any evidence that Linux, Windows, Mac, Java, .NET, etc., puts you at a significant business advantage one way or the other. Until now.

The reason? Server-on-demand providers like Amazon's EC2, Joyent, and others have reduced the capital necessary to launch scalable, server intensive businesses. Google has just launched a similar on-demand service, and companies like RightScale and CohesiveFT are building mature businesses around managing EC2 configurations.

Facebook applications are just the most extreme example of business initiatives that can be scaled on demand from $70/month on one EC2 server to $10,000/month on many dozens of servers running web, application and database server clusters and farms. Compare that with the old school of investing in a large data center with a significant fraction of the hardware and bandwidth that you might need if your business is a success. What used to cost $100k in capital can now be done with just a few hundreds of dollars.

And it's all possible as long as you are using a unix variant -- Linux for the most part -- to power your apps. So there is a whole class of companies out there using Linux that can out compete their Windows-using rivals -- again, the capital they need to launch is much smaller because of cloud computing. That means Linux will win among the class of young entrepreneurial businesses that are so vital to the US economy.

Before the flames start raining down from the sky, please understand that I'm not bashing Windows and .NET. This isn't about the inherent advantage of one operating system or platform over another. Oracle, IBM and other providers of enterprise software will also feel the pinch as mysql and postgresql outcompete Oracle and DB2 among startups.

There are a whole class of companies that cannot or will not use on-demand computing for security and other reasons. Health care, financial services and other industries that have high security requirements will likely maintain their own data centers for the foreseeable future. But that leaves the majority of US and World businesses open to the benefits of on-demand servers. (Truly huge comsumers of cpu and bandwidth will be able to get better deals by maintaining their own data centers, but at that point they will have "made it.")

Microsoft need to follow through on their promise to enter the world of cloud computing (and not this kind of BS "cloud computing"), or all the good they have done with .NET 3.5 will be wiped out. Their Live Mesh doesn't seem to be the answer (more about the desktop and collaboration that cloud computing). Steve Balmer and company have a lot of thinking to do if they're going to square Microsoft's price per CPU model with the price-per-hour model of on-demand computing.

Comments

[T.J.]

I think Microsoft has alot of restructuring to do if they want remain competitive in the coming years. First, for cloud computing, they definitely to create some new licensing models in that direction, as the cost of a Windows Server based cloud computing business is prohibitive. If they don't, more and more businesses will continue to transition to Linux powered "cloud" systems.
Also, on the same note, they also need to get to work on a major-kernel rewrite, as the current NT kernel is getting extremely bogged down and outdated (read: Vista) while they struggle to maintain compatibility. Meanwhile, Apple and Linux have seen big growths in Desktop OS market share, as people are hearing much more positives about them then they are hearing about Vista.

I'm not a MS hater, but I believe they are running on mid-90s business models, which isn't going to work as the market shifts towards a more diverse allocation of systems.